Heading East: The Best Currency Pairs To Trade And Strategies To Use In The Asian Trading Session

Heading East: The Best Currency Pairs To Trade And Strategies To Use In The Asian Trading Session

Asian trading session involves some big forex players, and the name Asian is rather relative. It comprises operations performed by exchanges of Japan, Singapore, Hong Kong, Australia, and New Zealand, so the geographical span reaches wider beyond Asia than it is usually imagined. Trading during this session has its peculiarities, and knowing them can better prepare you for reaping its benefits instead of fretting at inconveniences. In this article, we will explain what currency pairs to choose when to trade and what to expect (and not expect) from this session.

To begin with, what is the Asian session?

As we mentioned, the name Asian is rather relative. The forex activities that are happening under this name tie together operations performed by exchanges of Japan, Singapore, Hong Kong, Australia, and New Zealand. It is logical since the region is closely knit in a geographical sense, and interactions among countries are frequent and high in volume. Japan and Australia are big exporters, locally and globally, and they rely on demand from China. Hence, the pricing of pairs with AUD and JPY depends on the processes running within this powerhouse.

In terms of forex trade, Tokyo used to be the third biggest forex trading operator globally, but today more trading volumes come from Singapore and Hong Kong. However, it is the yen that is still the third most traded currency, and it makes up around 17% of all forex transactions. Overall, the Asian session is responsible for about 20% of all forex trades, and often the trends started during the Asian session will define the whole trading day. So, looking at the prices’ moves during those nighttime hours can prompt you how to plan your strategies during other forex sessions.

In a nutshell

  • The Asian session hosts under its roof trades performed in Japan, Hong Kong, Singapore, Australia, and New Zealand.
  • The recommended currencies for trading are GBP/JPY, AUD/JPY, EUR/JPY, AUD/USD, NZD/USD, and USD/JPY. Other pairs see lower volatility and liquidity because their corresponding sessions start later on.
  • The Asian session features lower liquidity and volatility in general, but it provides excellent opportunities for range trading, breakout trading, and better risk management.
  • Range trading means following the price movement as it fluctuates between the support and resistance levels.
  • Breakout trading means following the price as it breaks through the support or resistance levels and falls or grows significantly compared to its regular moving pattern.
Heading East: The Best Currency Pairs To Trade And Strategies To Use In The Asian Trading Session

Choose Your Money: What Pairs Is It Recommended To Trade?

Theoretically, you can trade all currency pairs available on the market, but for the given session, it is reasonable to pick the pairs that can bring the highest profits.

These pairs are linked to the economies of the countries that partake in the session, so pairs based on Japanese and Australian currencies prevail. This rule equally answers the question about pairs to trade during the Sydney session, and Tokyo sessions, because they all fall under the name of the Asian session.

Here, we mean pairs like GBP/JPY, AUD/JPY, EUR/JPY, AUD/USD, NZD/USD, and USD/JPY, where JPY is the yen, AUD is the Australian dollar, and NZD is the New Zealand dollar. Chinese yuan is not available for free forex trading, so you will hardly find it on the lists of international exchanges.

However, since China is a significant player in the global markets and impacts the economic situation in the Asia Pacific region, the big news coming from it can tip the forex markets significantly. So, although not physically present through the yuan, China impacts the prices and trends during the Asian session, so be sure to follow some China news digest regularly.

Choose Your Time: The Market Hours of Tokyo (Asian) Forex Session

Tokyo trading time that usually gives its name to the whole session is 00:00 a.m. to 09:00 a.m. (GMT). It is 07:00 p.m. to 04:00 a.m. EST time. For Tokyo, it translates into regular 09:00 to 18:00 working hours.

Sydney session runs from 09:00 p.m. to 06:00 a.m. GMT (or 04:00 p.m. to 01:00 a.m. EST). It overlaps significantly with the Tokyo session, so, together, they run as the Asian session (please remember it when researching the best pairs to trade during the Sydney session).

This stretch of time runs deep at night, so only those who can adjust their daily schedules can benefit from it. However, it is the normal working hours in that part of the world, so they operate according to their schedules.

It is during this session that the main features and benefits of the Asian session apply, yet the interesting price movement pattern begins when the Asian and London sessions overlap.

The Launching Hour: The Optimal Time Points To Trade During the Asian Session

This question can be separated into two and provided with two answers.

The first question is when to trade if you need more price predictability and some space for risk management. Then, you’d better start your trades with the opening of the Tokyo market.

It means trading from 00:00 a.m. to 09:00 a.m. (GMT) time brackets.

If you need more liquidity, price fluctuations, and risk, you can trade when the Tokyo and London sessions overlap, that is, 07:00 a.m. to 09:00 a.m. or 08:00 a.m. to 09:00 a.m., depending on the season. The point is, that Japan does not follow the daylight saving schedule, and Great Britain follows it, so the overlap in winter can be shorter than the trading overlap in summer. Mark it in your schedule.

This overlap sees impressive boosts in volatility and liquidity, so if your trading strategy relies on them, it’s your lucky hour(s). During these hours, look at what pairs show more price fluctuation, and that’s the tip on what pairs to trade during the Sydney session next time, before the next London overlap or the next big news arrival.

Get free daily updates on four major currency pairs, stock indices, and commodities.

What Pairs Are Most Profitable To Trade During The Asian (Tokyo) session?

We’ve discussed that naturally, it is reasonable to trade GBP/JPY, AUD/JPY, EUR/JPY, AUD/USD, NZD/USD, and USD/JPY during this session because, as primarily Asian session pairs, they see most movement. But how exactly this movement can be expressed, and how to plan trades to make the biggest profit possible?

The tip is standard, as it is for other sessions: watch the pips. The point of the trade is to catch the moment when the pips range works in your favor. During the Asian session, the pips difference can be significant for pairs based on JPY or AUD.

For example, AUD/USD can bring the pip range of 65, AUD/JPY – also 65, GBP/JPY can reach the range of 72 (at hours of session overlapping), NZD/USD and EUR/JPY can bring around 57-58 pips. This range looks very lucrative compared to the pip range of 23-24 for EUR/GBP and 39 for USD/CAD during the same Asian session.

So how to plan trades for Tokyo session forex pairs? A basic to-do list is as follows:

  • look at the most prospective pairs as listed here;
  • watch for signals to sell or buy during the range trade or breakout trade;
  • and enter and exit the trade accurately.

The biggest pip ranges can be found when the price falls from the resistance line or grows back from the support line. So watching its movement is key. The price breakout can reach the same number of pips that the support-and-resistance brackets are composed of.

Advantages Of Trading During The Asian Session

Sooner or later, every professional trader develops a preferred trading style and chooses the best forex pairs to trade during the Asian session for maximum profits in line with this trading style. The Asian session offers several particular advantages that may attract beginners, but experienced traders can benefit from them as well.

  • Relative predictability due to price running mainly within the support-and-resistance brackets. Price movements are easier to predict, so a trader can foresee where the price spike may lead and when it will reverse. If you look for more stability in trading, the Asian session is just for you.
  • Low volatility. The liquidity that makes the Asian session wheels spin comes primarily from Asia, and the volumes are comparably smaller than the influx of money during London or New York sessions. It is an objective fact. Low volatility is a prerequisite for support and resistance being adhered to, and unexplainable price falls or boosts are less likely to happen (although they can happen, mind that).
  • Clearly marked levels of entry and exit. The support-and-resistance range is a good marker itself of times when to enter or exit the trade. E.g., when the price reaches the resistance level, it’s high time to sell. Vice versa, if the price is hovering at the support level, you can open the buy position. If you use basic indicators in addition to this basic rule, the accuracy of your trading – and profits – will only increase.
  • Ample opportunities for risk management. If you can predict where the price heads (at least approximately), you can better set stop-loss orders and calculate risk-and-rewards calculations. It is a big advantage for those who prefer the trading style with lower risks.
  • Great breakout and range trade opportunities. Visible support-and-resistance brackets provide conditions for range trading, and breakout trade becomes possible when the price breaks through the level markers.
  • Low liquidity (can be seen as an upside or a downside, depending on your trading tastes). As said, liquidity comes from Asian markets, and its volumes are lower than those in London sessions. It means the price fluctuations are less sharp, and range trade is possible. However, when the Asian session overlaps with the start of the London session and the liquidity floods in, significant price breakouts are frequent, so it’s high time to enter the game for more experienced traders who can tolerate high levels of risk.

Predictability Of The Asian Session: The Safe Ground For Range Trade

One of the features of the Asian session is its adherence to the price range that has established itself over a relatively long time frame. The range is the price brackets between the support and resistance levels, and any trade that happens with reliance on these brackets (or during brief breakouts) is considered range trading.

Range trading has its principles and tricks, and now we will discuss the basics that will set you on the right path in this type of trading.

Range trading relies on the assumption that price fluctuates between support and resistance, and once it reaches the top value within the range, it is supposed to fall back. And vice versa, after reaching the low point, it bounces back. This assumption regularly gets confirmed, which makes the price moves more predictable, at least for short position trading.

How to prepare and execute a range trade during the Asian session?

Experienced traders use Stochastic and RSI indicators to see the buy and sell signals. The price reaching the resistance level is a sign to sell, and the price hovering near the support line is a signal to buy, as the general wisdom goes.

When we apply the Stochastic indicator we can detect the moments when the asset is overbought or oversold. It matches the support and resistance price moving signals well. An overbought asset is an asset to sell since the price is too high (it should be hovering near the resistance level). So it’s time to open a short position selling your asset. Vice versa, when the asset is oversold, its price will be near the support line, and it’s the time to open a short ‘buy’ position. So, two indicators complement each other, making your conclusions more valid and bound to bring you profits.

When opening positions, please do not forget about the basic precautions.

Include a stop-loss option to prevent significant losses if the Asian session forex market plays out against you. If you sell, place the stop level just above the resistance level. If you buy, place it right below the support line. It is within these brackets that the price will eventually correct itself, whether up or down.

Also, remember the rule of pips: the gains should be potentially bigger than losses you may incur. The risk-and-reward ratio that is more or less acceptable is 1:1, but the higher the value of the reward, the better. It’s a very good ratio if you can gain 80 pips while risking 25 or 30. 60 vs. 30 is also OK. So before opening the position, check what you will lose and what you will gain and balance the risks.

Taking Some Risk: Application Of Breakout Strategies In Asian Markets

Breakout trading is closely linked to range trading because it exploits the moments when the price breaks through the range and falls or grows significantly. After all, it will return to the range brackets and continue its regular fluctuations, but the moment of the breakout is time to reap some cash.

Breakouts are unusually sharp fluctuations in price that happen when the Asian and London sessions overlap and liquidity floods in. It happens at 00:00 GMT (or 04:00 ET). During the first half an hour, traders can expect to see a price candle sticking below or above the range of the previous trades. It is the beginning of the breakout, and it’s time to open a short position. If the breakout happens below the range, it should be a sell position, and if the breakout goes up, it’s time to buy. Just be sure to employ the stop loss, setting it at the recent swing high or low. The profit-taking level should be equal to the number of pips within the range: if the price brackets cover 70 pips, the target level of breakout trade should also be set 70 pips away from the entry-level (the upper or lower range line).

Afterword

As you see, the Tokyo session forex trade has its pros and cons, but they also depend on the preferences of individual traders. This session is perfect for more conservative traders who have an aversion to a high degree of risk and prefer trading where they can include more risk management. You can test trading waters by trading during this time frame and then move on to more bustling sessions when you feel ready. Anyway, a bit of pre-trading education and practice never hurt anyone, so we suggest you open a demo account and do your homework before risking money. Then, the Asian session or any other session will be profitable and pretty manageable for you!

by Justforex, 2022.07.13

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